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The role of personal and impersonal relational contracts on partner selection and efficiency

Author

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  • Manuel Muñoz-Herrera
  • Ernesto Reuben

Abstract

In this article, we use a laboratory experiment to study the effects of relational contracts on market efficiency in environments with different degrees of contract enforceability and market competition. By exogenously varying the communication protocol, we create relational contracts that are more personal or impersonal. On the one hand, personal relational contracts improve efficiency by promoting trust and coordination. On the other hand, impersonal relational contracts increase efficiency by facilitating the severance of trading relationships when more productive competitors enter the market. Therefore, the overall effect on market efficiency depends on the relative importance of competition and agreement enforceability (JEL D91, L22, L14).

Suggested Citation

  • Manuel Muñoz-Herrera & Ernesto Reuben, 2024. "The role of personal and impersonal relational contracts on partner selection and efficiency," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 40(3), pages 753-785.
    • Handle: RePEc:oup:jleorg:v:40:y:2024:i:3:p:753-785.
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    File URL: http://hdl.handle.net/10.1093/jleo/ewad011
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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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